Two recent Queens County Supreme Court decisions have shed new light on a business’s due process rights in the circumstance of alleged illicit cannabis sales, store closures and Operation Padlock.
Operation Padlock is a government attempt to close illicit cannabis shops that has resulted in hundreds of alleged illicit businesses being closed, tens of millions of dollars in fines and tens of millions of dollars in seized products.
As discussed in a prior Legal Alert, U.S. District Judge J. Paul Oetken of the United States District Court for the Southern District of New York found the operators were given notice and opportunity to cure, as well as a path to appeal the closings through state hearings and hearings before the New York City Office of Administrative Trials and Hearings. This decision was issued under particularized circumstances, whereby courts’ evaluations of alternative circumstances have resulted in different, and more prominent decisions that are becoming the bedrock of New York cannabis case law.
Where the government either seeks to, or does, deprive someone of their property, they must comport with the requirements of the Due Process Clause of the Fourteenth Amendment. Courts evaluating whether the government comported with the Due Process Clause evaluate three factors, including:
(1) “[T]he private interest that will be affected by the official action;
(2) …the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and
(3) …the Government’s interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail.”
Mathews v. Eldridge, 424 U.S. 319, 335 (1976).
In the Opinion and Order written by U.S. District Judge J. Paul Oetken, only the first of the three Mathews factors was found to weigh in favor of the aggrieved businesses. See Moon Rocket, et al. v. City of New York, et al., United States District Court for the Southern District of New York, Index No. 24-CV-4519 (JPO) (July 18, 2024). The private interest affected, the "ability to operate their businesses for purposes other than the unlicensed sale of cannabis," has been recognized as significant. Id. The distinguishing fact here was that because the property seized could be returned within nine days, or “as soon as an alleged wrongdoer post[ed] a bond or [paid] a penalty,” U.S. District Judge J. Paul Oetken believed that the post-seizure administrative processes comported with due process requirements. Id (quoting Harrell v. City of New York, 138 F. Supp. 3d 479 [S.D.N.Y. 2015]).
Another Judge, Another Opinion on Due Process for Cannabis Shop Owners
Queens County Supreme Court Judge Kevin J. Kerrigan came to a slightly different conclusion under different circumstances, that: “[t]his sequence of events resulted in the closure of Petitioner’s business notwithstanding that it was not found, on this record, to have engaged in any illegal activity, which is a clear violation of due process under the law.” See Matter of 3512 Bell Corp. v. City of New York, et al., Queens County Supreme Court, Index No. 715613/2024 (August 14, 2024). Although Judge Kevin J. Kerrigan does not enumerate the Mathews factors, he does further conclude that: “summarily shuttering businesses prior to taking the necessary steps to determine whether a violation has occurred stands against the cornerstone of American democracy and procedural due process.” Id. By interpretation, one could argue that two of the three Mathews factors would be found to weigh in favor of the aggrieved businesses in Judge Kevin J. Kerrigan’s court. No court or counselor has argued (or should argue) against the fact that the unlicensed sale of cannabis represents an enormous public health concern, but that fact does not obviate New York government agencies from the requirement to provide respondents with procedural due process.
Queens County Supreme Court Judge Kevin J. Kerrigan later decided, in a different matter, that an agency’s ability to disregard decisions made by the Office of Administrative Hearings after a hearing is unconstitutional as it violates the Fourth Amendment (due process rights). See Matter of A S A 456 Corp. v. City of New York, et al., Queens County Supreme Court, Index No. 721248/2024 (October 29, 2024). Here, Judge Kerrigan evaluated the Mathews factors necessary to determine violations of due process, finding the first two factors to weigh in favor of the petitioning business. Id. Judge Kerrigan ruled that “if the final arbiter has the authority to confer no weight to the hearing, there is no real meaningful ‘opportunity to be heard,’ which vastly increases the risk of erroneous deprivation and raises a due process concern.” Id.
With Differing Rulings on Due Process, it is Best to Seek Legal Advice
This in-depth evaluation of the processes utilized in Operation Padlock by the courts has taken us from a finding of no due process concerns in July of this year, to now finding procedural due process concerns only four months later. It will be interesting to see how this issue develops under further court scrutiny.
Government agencies are held to strict legal standards when depriving someone of their property, especially when the hearing regarding such deprivation is held post-seizure. The entering of new and changing case law into New York’s developing precedent allows for the development of better supported arguments during adjudication. Due process arguments are complex and benefit from effective argument by knowledgeable legal professionals. Additionally, not every situation where a shop is closed for alleged illicit cannabis activities violates procedural due process. Speaking to a knowledgeable legal professional can help to evaluate the legal implications of particular situations.
